Startup employees can sometimes turn private-company equity into cash before an IPO, but an investor’s interest—or a company-arranged offer—does not by itself give you the right to sell. Start by identifying whether you hold issued shares, unexercised options, or RSUs, then determine exactly what the transaction buys, what approvals and deadlines apply, and what taxes and withholding may reduce your proceeds. The guidance below is focused on U.S. transactions; legal and tax outcomes depend on the documents and facts.
What is a startup secondary sale, and how is it different from a tender offer?
A secondary sale transfers existing shares from a holder to a buyer. In an employee liquidity program, the buyer may be the company, an existing investor, or another eligible purchaser. The transaction documents and company rules determine which holders and securities qualify and what approvals are required.
A tender offer is an offer to buy eligible securities on stated terms, with procedures that depend on the offer and applicable securities rules. A company-arranged employee offer may be structured as a tender offer, but not every private-company buyback is legally one. The SEC’s tender-offer interpretations address transaction-specific requirements, not a universal checklist for every startup program.
| Route | What happens | What to verify |
|---|---|---|
| Tender offer | An offeror invites eligible holders to tender securities under specified terms; the offer documents describe eligible securities, price, quantity limits, deadlines, and payment procedures. | Who may participate, which instruments qualify, offer period, caps, withdrawal rights, information supplied, and how and when payment is made. |
| Direct secondary sale | A holder sells existing shares to a third-party buyer. | Whether the shares can be transferred, whether company consent or a right of first refusal applies, whether the buyer and seller meet applicable requirements, and what fees and closing conditions apply. |
| Option cash-out or exercise-and-sale | An option may be cancelled for cash, or the holder may exercise it to acquire shares and then sell those shares. | Whether the option is actually exercised, who pays the strike price and when, and how the documents characterize the payment and sale. |
PwC describes established secondary firms as one possible route for a private share sale, while emphasizing that transfer limits and legal analysis matter. A willing buyer does not override a company’s contractual restrictions or securities-law resale constraints.
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What equity do you actually hold?
The instrument determines what can be sold and how the transaction may be treated. Do not compare offers using price per share until you know whether the offer is buying shares, cancelling options, or settling awards.
Issued shares
Shares you already own may be eligible for a sale, subject to your plan and shareholder documents, any company approval process, and applicable resale restrictions. A vested option is not an issued share: vesting generally makes an option exercisable under its terms, but does not itself mean you own the underlying stock.
Unexercised options
An offer involving options may cancel them for cash or require an exercise followed by a share sale. These are not interchangeable structures. A cashless-exercise arrangement also needs scrutiny: Fenwick’s analysis notes that mechanics that do not actually pay the exercise price as required may be treated as option cancellation. Check the award documents and the actual funds flow rather than relying on the transaction’s label.
For the specific purpose of Rule 144 holding-period analysis, the SEC states: “The holding period for restricted securities acquired under an employee stock option always begins on exercise of the option and full payment to the issuer of the exercise price.” The SEC made this statement in its Securities Act Rules interpretation on April 2, 2007. The grant date does not start that Rule 144 period. This point concerns Rule 144; it does not determine tax holding periods or by itself permit a sale.
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Double-trigger RSUs
Some private-company RSUs require both service-based vesting and a liquidity event or other liquidity condition before settlement. Baker McKenzie’s 2025 analysis describes tender structures that waive the liquidity condition for qualifying time-vested awards. A waiver may cause settlement or enable a cash payment, with possible taxable income and withholding or reporting obligations. Confirm whether the offer actually includes your RSUs and what accepting the waiver does to the award.
How should you compare the economics?
A headline offer price is not the amount you will take home. Compare the complete transaction for the specific instrument and number of securities involved.
- Eligible quantity: Confirm the number of shares or awards you may tender, any cap, and whether the cap is based on vested holdings or another measure.
- Gross value: Calculate the price multiplied by the number of securities accepted, while checking whether the transaction prices options or shares differently.
- Exercise cost: If an exercise is required, include the strike price and confirm when payment is due and whether it is irrevocable.
- Taxes and withholding: Ask what amounts may be withheld at settlement and whether you may owe additional tax later.
- Fees and settlement terms: Check transaction fees, escrow, representations, payment date, and the consequences of withdrawing or failing to close.
- What remains: Work out how many shares or awards remain after a partial sale and what restrictions continue to apply.
Do not assume a 409A valuation equals the sale price, or that the price of a preferred-stock financing is the value of employee common shares. The offer price may reflect a different security, transaction, or set of terms. Ask how the price was set and what information is available to evaluate the offer.
A partial sale exchanges some exposure to future upside for cash now; it does not eliminate the company-specific risk in the equity you keep. Remaining shares can also be affected by dilution, liquidation preferences, and future financing or liquidity outcomes. Consider the cash received alongside both the upside forgone and the risks retained.
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What taxes and withholding could apply?
There is no single tax result for “selling startup equity.” Treatment depends on the instrument, option type, exercise and sale dates, transaction mechanics, sale price, and your tax residence. Option cancellation, exercise-and-sale, a share sale, and any premium over an exercise price may be characterized differently. OGCPA’s June 2026 practitioner article, authored by Andrew Sedlacek, CPA, discusses this fact-specific nature; it is not IRS guidance.
The SEC’s Rule 144 holding-period interpretation is a securities-law point, not a tax rule. Do not use the option grant date, the Rule 144 period, or the offer’s description as a substitute for calculating the relevant tax dates and treatment. Ask a tax professional to model the actual award, exercise timing, sale terms, withholding, and residence before accepting.
What restrictions and offer terms should you check?
Read the offer alongside the equity plan, award agreement, charter, and shareholder agreement. Depending on the documents and transaction, company approval, transfer restrictions, rights of first refusal, securities-law resale constraints, or a blackout policy may affect whether and when a transfer can close.
- Confirm eligibility rules, including whether current and former employees are treated differently.
- Check which securities qualify and whether there is a share or percentage cap.
- Identify any required company consent, right of first refusal, or other transfer process.
- Review the offer price, available company information, fees, escrow, representations, and payment timing.
- Note the acceptance deadline, withdrawal terms, and what happens if a condition is not satisfied.
- Ask whether a blackout or fundraising-period policy prevents a transfer at that time.
Disclosure obligations and procedures vary with the transaction and offeror. The SEC’s Rule 701 interpretation explains that more than $10 million in covered securities granted or sold during a consecutive 12-month period is a threshold relevant to disclosure obligations; the trigger is not based on vesting or exercise totals crossing that amount. This is a regulatory disclosure threshold, not a statistic about how often employees sell or how much they receive.
Questions to answer before accepting
- What is being sold or cashed out? Identify issued common shares, options, or RSUs, and whether the transaction purchases the security, cancels an award, or settles it.
- If options are involved, what is the exact sequence? Determine whether there is an exercise followed by a sale or an option cancellation; identify who pays the strike price, when it is paid, and whether payment is irrevocable.
- How much can you participate? Confirm eligible securities, any cap, and how employee status affects eligibility.
- Can the transfer proceed under your documents and company policies? Check consent requirements, transfer restrictions, rights of first refusal, and blackout rules.
- What supports the price, and what information can you review? Ask how the offer price was set, whether the offer gives enough information to assess the risks, and why it might differ from a valuation used for another purpose.
- What will you keep? Assess the remaining equity, potential dilution and preference effects, and the future upside and company-specific risk you retain.
- What is your expected net amount and tax timing? Get a calculation for the actual instrument and transaction rather than assuming all proceeds are capital gains.
- What are the closing mechanics? Review the deadline, payment timing, escrow, fees, required representations, and withdrawal consequences.
No market-wide frequency, typical employee participation rate, average cash-out amount, or representative discount is established here. Do not treat anecdotes or the Rule 701 disclosure threshold as evidence of how common employee liquidity transactions are.
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